If you’re about to enter the real estate market, you should be as prepared as possible. Having a large, pre-approved mortgage gives you more choice and freedom.
However, because it involves money, getting lenders to agree to loan you a large sum can feel stressful. Sometimes, it’s also hard to convince them that you’re good for the money.
Fortunately, this post covers all the essential tips you need for obtaining a new mortgage. Here’s what you should do:
Keep Track Of Your Credit Score
Canadian credit scores run from 300 to 900 with higher numbers indicating a better rating. Lending institutions, such as banks, use them to predict how likely you are to pay them back. The higher your score, the lower the interest rate you’ll pay on your mortgage.
If your credit score is under 660, you’ll need to work on it to access the best rates. Pay your credit card every month, clear any outstanding debts you owe, and make sure that your electoral address matches all your bills and statements. You can also do things like increase your credit limit, but don’t use it.
Increase The Size Of Your Down Payment
In 2023, it’s likely that lenders will lend more cautiously given generally rising interest rates. Therefore, save for a larger down payment. If you can increase the cash you have on hand to 10 to 20 percent of the purchase price of the property, you can access the best rates.
The down payment size increases proportionately as the home’s value increases. In Canada, you may only need a 5 percent deposit for homes under $500,000, but you might have to fork out more than 20 percent if the house is over $1 million.
Maintain A Predictable Or Increasing Income
If you are a regular employee, hold onto your job for the time being. Avoid the temptation to take a month off to find alternative work. If you can get a promotion, do so.
That’s because lenders want to lend to people with stable or rising incomes. If you show that your economic situation is secure or improving, you’re more likely to attract the lowest rates.
If both you and your partner have full-time salaried incomes, banks like that even more. In these situations, they are often willing to lend more money at lower rates.
Eliminate Existing Debts And Cut Your Living Costs
Lastly, you’ll want to take steps that demonstrate to lenders that you meet their “affordability” criteria. These tests look at your debt service payments and living costs and ask whether you can practically afford your monthly mortgage payments. If you have large existing debts, you’ll struggle to get a large home loan at reasonable rates. Some lenders may not lend to you at all. However, if your other costs are low, they will.
To improve your standing, clear your credit card debt and do not use your lines of credit. If you have a student or car loan, pay it down as much as possible. Look for other ways to reduce your monthly expenditures, such as cancelling your gym membership or seeking lower-cost childcare arrangements.